The collapse of Silicon Valley Bank and the recent liquidity difficulties faced by other banking institutions has brought to the fore a number of fundamental questions about the nature of banks’ business models, the role they play in a modern ‘digital’ society and perhaps most importantly, whether anything meaningful can be done to alleviate the risks of a run in the digital age.
To quickly recap, most banks (with the exception of some niche institutions seeking to operate as a bank for other reasons such as access to payment system) operate a version of ‘maturity transformation’: that is, they borrow monies with short repayment periods, mostly from depositors, and lend it for longer periods.
